Avalon’s Kinsella Says San Diego, Like Any Robust Startup Ecosystem, Needs Local VCs

venture business for us to stick our toe in the water. We’re more than happy to invest and we like to be very capital-efficient, so I would just as soon peel off a few hundred thousand, a half a million, whatever, serially in furtherance of an opportunity rather than participate in some hyped up, $30 million series A deal where we’re tranched…We haven’t participated in one of those type of deals in probably four or five years, and we’re very happy with the way we are proceeding.”

Although the lack of local venture capital hasn’t had much impact on Avalon itself, Kinsella says it would help San Diego’s innovation economy if there were more local capital in the region. With more local venture capital, Kinsella says, “even if we don’t invest in something, somebody else will. Hopefully it will be successful. It will increase the branding recognition of San Diego County as a hotspot for entrepreneurs in whatever field.”

More venture investments create more startups, which also helps to create a broader and deeper community of entrepreneurs, Kinsella says. “It creates a pool of skilled individuals who have been trained to certain levels of competence with other peoples’ money. Then there’s a big mulching that takes place…Many people tend to stay with a startup for three to five years, then they ring the cash register and go and look for something else.”

In other words, it’s a great entrepreneurial circle of life. But it’s a cycle that needs venture capital—local venture capital—to remember the players and innovations, and to keep the great wheels turning.

Good article. Confirms what we all know. Lots of good mechanics and car parts (metaphorically speaking), but no gas for the tank.

Avalon appears to have started in bootstrap mode almost 3 decades ago with $400,000. Is this the model for seeding new local funds? I’d be interested in understanding if most of Avalon’s deals were local or if a large portion of the capital was invested outside of the San Diego area.

Also, I hear of friction related to encroachment from outside capital coming into the San Diego market to fund our local entrepreneurs. I don’t think the friction is from external funds, but that the startups leave the San Diego area as a condition of funding (often heading to the Bay Area). Is this a real problem? If so, what can we do to become attractive as a local venue to fund businesses that don’t have to move?

Also, is angel / venture capital as local as it used to be? …or are seed stage deals becoming more independent of geography? …or have they been that way, but not very noticeable? I know many wealthy San Diegans that apply their wealth across the country and globe, even as we often hear that “venture is local”.

Anyway, great article, and I’m glad to see Avalon back in the market for yet another fund, even if some of the former perennial powers are dissipating.